JOHN GASTALDO / Union-Tribune Workers moved sod into place for the newly renovated golf course at Montesoro in Borrego Springs. The developer, GH Capital, eventually plans to build 800 homes, a boutique hotel, spa and wellness center at Montesoro.

Rams Hill has a new name: Montesoro.

It's getting a rebuilt golf course, designed by renowned architect Tom Fazio, at a cost of nearly $20 million. It's getting a renovated clubhouse, for $1.5 million, and the gated community is getting a new entryway, for $4 million.

Eventually, GH Capital plans 800 homes, a boutique hotel, spa and wellness center at Montesoro. It's also buying a rundown grocery store in Borrego Springs.

But GH Capital also is embroiled in a bitter lawsuit with the former manager of the project, who questioned in court documents whether the company has more debt on Montesoro than the property is worth.

Still, many Borrego Springs residents believe that GH Capital has the financial wherewithal to make Montesoro a project that could transform the little town of 3,000 surrounded by the Anza-Borrego Desert State Park.

“If they pull it off, it could be a turning point for this area becoming a resort town rather than sleepy little place where people go to retire,” said David Cragoe, a real estate agent who purchased a home in Rams Hill.

Opened in 1981, Rams Hill Country Club & Golf Resort has a checkered past. The original developer, DiGiorgio Corp., built 27 holes of golf, community buildings and residences – most used by part-time visitors. Over the years, more than 280 homes were built there.

In 1988, DiGiorgio sold Rams Hill to a Texas firm for $9.5 million. But a serious downturn in real estate plunged the project into bankruptcy in 1994. A year later, the project was taken over by a developer with an aggressive expansion plan, but the project landed back in bankruptcy court in 2002.

“This place has a history of people buying it, getting something going and then leaving us with a big pile of sand,” Cragoe said.

San Diego's Douglas Wilson Cos. was appointed by the bankruptcy court as receiver and began operating the property in October 2002. Borrego Investors LLC, an affiliate of GH Capital, bought it out of receivership in September 2004 for about $15 million.

Gregory Perlman, the principal of GH Capital, said Borrego Springs isn't for everyone. Potential buyers have to like the desert, he said.

But Perlman also thinks Borrego and Montesoro have a lot to offer as an alternative to Palm Springs – one without the traffic, big-box stores, lines at restaurants and scarce tee times.

Perlman plans to build 800 homes in Montesoro of a quality that the community hasn't seen before, he said. He compared it to the Santa Luz development near Rancho Santa Fe.

Lots for 36 homes in the first phase are being graded now. They're in two neighborhoods – one with homes ranging from 2,000 to 2,700 square feet on small lots and starting at $550,000, and the other with homes ranging from 3,200 to 4,300 square feet on one-third-acre lots starting at $875,000.

Perlman said bare lots also will be sold, starting at $300,000. He said 200 people have signed up on an interest list for the project.

“Their design and projected plan for Montesoro is quite different than anything we've had in Borrego,” said Cathy Oswalt, an associate broker with Coldwell Banker. “We're a second home and retirement community, and I believe they're going after a specialty market” of affluent buyers.

Oswalt added that she hopes the developers can pull it off. “If they accomplish what they want to accomplish, it would benefit the real estate market in general,” she said.

Long term, Perlman expects Montesoro to adopt a wellness theme, with a spa and activities center featuring fitness, pool and tennis facilities. He also plans to have strength trainers, sports therapists and physiologists.

A village-like retail center is on the drawing boards, as well as a 75-room boutique hotel, which is expected to start construction late next year.

For now, the Tom Fazio golf course is getting most of the attention from a construction standpoint. The first nine holes are slated to open within a few months. The second nine is earmarked to open in the fall. The course will be private.

While construction is occurring now, Montesoro was slow getting off the ground after GH Capital purchased it in fall 2004. Shortly after buying the property, GH Capital hired The Wiles Group, a national project manager for golf communities including La Quinta Resort, to manage the construction and lot sales.

GH Capital terminated the contract in the summer of 2005 and filed a lawsuit against Wiles for breach of contract and other claims. Wiles countersued. The case is ongoing in San Diego Superior Court.

In court documents, Wiles contends that GH Capital borrowed a total of $20 million from Namco Capital Group, an investment fund in Los Angeles, for the project in 2004 and 2005. It also got a $25 million loan from United Commercial Bank in March, part of which was used to repay Namco about half of what it's owed.

Wiles lawyers, who did not return telephone calls, claim in court filings that GH Capital has spent all but about $7 million of the United Commercial loan. At an average cost of $1 million a hole, Wiles lawyers questioned whether the company has enough money left to finish the second nine of the golf course – let alone pay for other planned improvements.

But Perlman bristles at the contention that the company lacks the capital to pull off the project.

He said GH Capital owns apartment buildings with more than 8,000 units nationwide. It bought a former Holiday Inn in Brentwood and renovated the building into the boutique Hotel Angeleno. Perlman termed Namco an equity partner in Montesoro.

“Our capital is huge,” Perlman said. “Go to our Web site. We have $600 million in assets. Namco is a family-owned opportunity fund with $4 billion in assets. Between the two of us, there's a ton of capital.”

With water scarce in the desert, Perlman said that Montesoro has water rights to supply all the development it plans. And he isn't worried about the slowing real estate market.

“I don't look at what's happening in the market. It has nothing to do with a project like mine,” Perlman said. “All the new, high-end second-home developments are selling as quickly as they ever did” in Southern California.

Perlman also is investing in Borrego outside of Montesoro. He is in escrow to purchase the Borrego Valley Foods store for just under $1 million. The grocery will close and be renovated into a more upscale market, Perlman said.

Gwenn Marie, president of the Borrego Springs Chamber of Commerce, said residents initially were wary about GH Capital's bold plans for Montesoro simply because of the history at Rams Hill.

But lately, skepticism in the community seems to be diminishing, she said.

“There's a growing understanding that these guys are making a serious investment,” she said. “I think everyone is interested to see what happens. It's pretty common knowledge that the (buyers) they're seeking to attract up there (are) definitely at the higher end of the spectrum.”

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Mike Freeman: (760) 476-8209; mike.freeman@uniontrib.com